Financial and Managerial Accounting
Financial and Managerial Accounting
7th Edition
ISBN: 9781259726705
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 7, Problem 1PSB
To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

  • Assets: Increase in asset should be debit and decrease should be credit.
  • Liabilities: Increase in liabilities should be credit and decrease should be debit.
  • Equity: Increase in Equity should be credit and decrease should be debit.
  • Expense: Increase in expense should be debit and decrease should be credit.
  • Revenue: Increase in revenue should be credit and decrease should be debit.

Credit Card:

It refers to the card made of plastic and issued by a bank. It provides an individual to buy goods and services on credit when they have shortage of cash.

Perpetual Inventory System:

It refers to the system to record the transaction related to inventories at the time of their occurrence. Each sale and purchase is recorded at the time they occurred.

To prepare: Journal entries for the given credit card sales transactions.

Expert Solution & Answer
Check Mark

Explanation of Solution

Aug 4 sold $3,700 of merchandise on credit (that had cost $2,000) to M.C.

Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 4
Accounts Receivables (M.C)

3,700


Sales


3,700

(Being sales of $650 on credit is recorded )



Table(1)

  • Since, the sales of merchandise on credit will increase the value of accounts receivables and accounts receivable is an asset account, it is debited when it is increased.
  • Since, the sales of merchandise would increase the value of sales in the company and sales is revenue account, it is credited when it is increased.
Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 4
Cost of Goods Sold

2,000


Merchandise Inventory


2,000

(Being cost of goods sold is recorded )



Table(2)

  • Since, the cost of merchandise sold is $2000 and company is using perpetual inventory system, it is debited.
  • Merchandise inventory account is debited as it is an asset account and it has decreased.

Aug 10 sold $5,200 of merchandise (that had cost $2,800) to customers who used their commerce bank credit card.

Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 10
Cash

5,044


Credit Card Expense

156


Sales


5,200

(Being sales of $5,200 is recorded payment for which is made with MasterCard credit cards )



Table(3)

  • Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
  • Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
  • Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 10
Cost of Goods Sold

2,800


Merchandise Inventory


2,800

(Being cost of goods sold is recorded )



Table(4)

  • Since, the cost of merchandise sold is $2,800 and company is using perpetual inventory system, it is debited.
  • Merchandise inventory account is debited as it is an asset account and it has decreased.

Aug 11 sold $1,250 of merchandise (that had cost $900) to customers who used their G.M cards.

Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 11
Cash

1,225


Credit Card Expense

25


Sales


1,250

(Being sales of $1,250 is recorded payment for which is made with MasterCard credit cards )



Table(5)

  • Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
  • Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
  • Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 11
Cost of Goods Sold

900


Merchandise Inventory


900

(Being cost of goods sold is recorded )



Table(6)

  • Since, the cost of merchandise sold is $900 and company is using perpetual inventory system, it is debited.
  • Merchandise inventory account is debited as it is an asset account and it has decreased.

Aug 14 received M.C’s check in full payment for payment for the purchase of Aug 4.

Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 14
Cash

3,700


Account Receivable (M.C)


3,700

(Being payment from an account receivable is recorded)



Table(7)

  • Since, payment from an accounts receivable will increase the cash and cash is an asset account, it is debited when it is increased.
  • Since, payment from an accounts receivable will decrease the accounts receivable and accounts receivable is an asset account, it is credited when it is decreased.

Aug 15 sold $3,250 of merchandise (that had cost $1,758) to customer who used their G.M cards.

Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 15
Cash

3,185


Credit Card Expense

65


Sales


3,250

(Being sales of $3,250 is recorded payment for which is made with MasterCard credit cards )



Table(8)

  • Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
  • Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
  • Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 15
Cost of Goods Sold

1,758


Merchandise Inventory


1,758

(Being cost of goods sold is recorded )



Table(9)

  • Since, the cost of merchandise sold is $2000 and company is using perpetual inventory system, it is debited.
  • Merchandise inventory account is debited as it is an asset account and it has decreased.

Aug 22 wrote off the account of C.C against the allowance for doubtful accounts. The $498 balance in C.C’s account stemmed from a credit sale in November of last year.

Date
Account Title and Explanation
Post ref
Debit($)
Credit($)
Aug 22
Allowance for Doubtful Account

498


Accounts Receivable


498

(Being write off of uncollectible accounts receivable is recorded)



Table(10)

  • Since, in allowance method of accounting for accounts receivable the amount for bad debt expense is deducted from allowance for doubtful account which is a contra asset account, it is debited when it s decreased.
  • Since, in allowance method of accounting for accounts receivable the deduction is made against the account receivable account which is an asset account, it is credited when it s decreased.

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